My company had its annual Finance Conference this week (“All Your Budgets Are Belong To Us”), and while I found a lot of things there interesting, I have no intention of imposing 50-odd hours of concentrated audit and tax details on innocent bystanders , although you’re on notice, Chico – if you don’t shape up and behave I will find a way to force you to listen to me explain the history and structure of Sarbanes-Oxley’s Section 404 reporting requirements.
Anyway, during the sessions of taxes, a few points were revisited about corporate taxes. And to put it bluntly, the folks who hate corporations and like to claim they don’t pay enough in taxes, well, they’re lying when they make claims like that.
So, if the corporate rate is 34.6%, what’s with the claims that companies don’t pay taxes, or at least don’t pay enough? In some cases it’s deliberate lying, but in others it’s just an exaggeration based on a failure to understand how taxes work for corporations. PriceWaterhouseCoopers prepared a study from 2006 through 2009 examining Global Effective Tax Rates, which provides some insights. By the way, an ‘effective tax rate‘ is what a company really pays, not the rate assigned by a government. The effective rate can be lower, or higher, than the official rate declared by the government. The PWC study discovered that US-based companies operating globally pay more than eight percentage points more in ETR than companies operating globally with a headquarters outside the
There are a number of significant differences between corporations and individuals, including the bull’s eye on the bank of corporate leaders. What I mean is, corporations don’t vote but people do, so a lot of politicians, pretty much everywhere, try to promise low taxes to people but increase taxes on corporations, especially if those businesses can be smeared as economic villains. In reality, however, corporations represent jobs, economic growth and stability, and when government goes after corporations, then government is attacking jobs and GDP.